M/S. J KUMAR -RPS JOINT VENTURE,MUMBAI vs. DCIT, CENTRAL CIRCLE-5(1), MUMBAI

This appeal by the assessee is directed against the order of Commissioner of Income Tax Appeals-53, Mumbai [in short ‘CIT(A)’] dated 06/06/2019 for the assessment year 2011-12 assailing confirmation of penalty under section 271(1)(c) of the Income Tax Act, 1961 ( in short ‘the Act’).

The facts of the case in brief are : In assessment proceedings the Assessing Officer made addition on account of bogus purchases. The penalty under section 271(1)(c) of the Act was also initiated for furnishing inaccurate particulars of income. The assessee filed appeal against the quantum addition. The CIT(A) granted part relief to the assessee by estimating addition @ 12.5% of total alleged bogus purchases. The Assessing Officer vide order dated 31/03/3018 levied penalty of Rs. 1,76,910/- on estimated addition confirmed by CIT(A).

Ms. Usha Gaikwad, representing the Department submitted that the assessee failed to substantiate genuineness of the purchases in the impugned assessment year, hence, addition was made in respect of bogus purchases. The penalty was rightly levied by the Assessing Officer for furnishing inaccurate particulars of income qua bogus purchases. The CIT(A) has upheld the penalty order on merits as well as rejecting alleged technical defects pointed by the assessee.

We have heard the submissions made by ld.Departmental Representative and have examined the orders of authorities below. A perusal of the assessment order reveals that the addition has been made on account of bogus purchases. The Assessing Officer made addition of entire alleged bogus purchases. In First Appeal, the CIT(A) restricted the addition to 12.5% of such purchases. The Assessing Officer levied penalty on the estimated addition confirmed by the CIT(A). It is an accepted legal position that no penalty under section 271(1)(c) of the Act can be levied on additions that have been made merely on the basis of estimations. Levy of penalty under section 271(1)(c) of the Act is not automatic. Penalty proceedings are distinct and separate from assessment proceedings. The finding given in assessment proceedings are not conclusive so far as the penalty

The Hon'ble Punjab & Haryana High Court in the case of CIT vs. Sangurur Vanaspati Mills Ltd.,303 ITR 53(P&H) has held that where addition has been made on the basis of estimation and not on account of any concrete evidence of concealment, penalty under section 271(1)(c) of the Act cannot be invoked.

The CIT(A) in impugned order has rejected assessee’s contention that no penalty is attracted where additions are made on estimations. The CIT(A) has drawn support from the following decisions to wreck the argument of assessee:-

In the result, impugned order is set aside and the appeal of assessee is allowed.